Opinion
No. 02 CIV. 1000 (DLC)
September 19, 2002
Thomas J. Lilly, Irene C. Libby, O'Donnell Schwartz Glanstein Lilly LLP, Garden City, NY, for Plaintiffs.
Michelle Cucuzza, Robinson Silverman Pearce Aronsohn Berman LLP, New York, NY, for Defendants.
OPINION AND ORDER
Faced with an attempt by the employer-appointed trustees to spin off that part of an ERISA pension benefit trust fund that covers non-union employees, and to pursue arbitration of the proposal in the absence of consent, the union-appointed trustees of the trust fund filed suit on February 17, 2002, seeking a declaratory judgment that the spin-off is beyond the powers of the trustees to implement and is, therefore, a non-arbitrable dispute. For the reasons that follow, judgment will be entered for the plaintiffs and an injunction against arbitration issued.
BACKGROUND
The following facts are as stipulated by the parties, as alleged by the defendants, or as contained in the documents on which both parties rely. Local 153, Office and Professional Employees International Union, AFL-CIO ("Local 153"), is the collective bargaining agent for certain clerical employees employed by Group Health Incorporated, Inc. ("GHI"), a New York health insurance provider. A collective bargaining agreement ("CBA") is in force between GHI and Local 153 until December 31, 2002.
The parties have stipulated to all of the facts at issue here, with the following limited exceptions taken from the affidavit and reply brief submitted by the defendants: A "cash balance plan" is "a category of employee pension benefit plans that provides retirement and related benefits to eligible plan participants and beneficiaries." Non-collectively bargained employees would continue, after implementation of the spin-off proposal, to accrue and receive retirement and related benefits under either the GHI Pension Plan or the cash balance plan. The defendants' reply brief notes that the proposal would involve a "transfer of Trust assets" and states that "[i]f the Proposal is adopted, an allocable portion of the Fund's assets will be transferred to a trust fund governed by ERISA."
1. The Trust Agreement
The Local 153-GHI Pension Fund ("Trust Fund") was established by a trust agreement executed on April 1, 1970 and amended on December 31, 1975 ("Trust Agreement"). The Trust Agreement establishes a joint board of six trustees. Two of the trustees are designated by Local 153 ("Union-appointed Trustees") and four by GHI's Board of Directors and management ("Employer-appointed Trustees"). The plaintiffs in the instant suit are the Union-appointed Trustees and the defendants are the Employer-appointed Trustees.
The Trust Agreement, as amended on December 31, 1975, defines the "Trust Fund" as "the Contributions of each Employer . . . held by the Trustees subject to the terms of this Revised Agreement and Declaration of Trust." The introductory "Whereas" clauses in the Trust Agreement describe the pension plan as negotiated by Local 153 and GHI "for employees employed by GHI," and state that GHI is required to "make contributions to said Trust Fund sufficient to ensure . . . that each Employee of GHI" who is entitled to benefits receives such benefits. The Trust Agreement provides that "[t]he Trustees shall invest all monies received or held by the Trust Fund," and "shall use and apply the Trust Fund for [certain enumerated] purposes only." One of the enumerated purposes is "[t]o provide retirement and related benefits for Participants and Beneficiaries in Group A or Group B as the Plan governing the respective Groups may be modified from time to time." The "Plan" is defined as "the schedule of benefits governing Group A and Group B and such rules and regulations of the Trust Fund as may be established from time to time by the Trustees for the administration of the Trust Fund."
"Employer" is defined in the Trust Agreement as "GHI, GHI of New Jersey and any other corporation affiliated with GHI adopting a pension plan covering Participants and Beneficiaries in Group A or in Group B."
Group A includes those employees who were either not employees or not eligible for benefits on April 1, 1970, and Group B includes those employees who were eligible for benefits on April 1, 1970.
The particular schedule of benefits adopted by the Trustees for all eligible employees of GHI, including both union and non-union employees, is the Local 153-GHI Pension Plan ("GHI Pension Plan").
The Trust Agreement provides the Trustees with the power "[t]o demand, accept and receive all Contributions, hold or invest the same and the income, increment and proceeds of the sale of any investments or reinvestments, and manage and administer the assets of the Trust Fund for the uses, purposes and trusts herein provided." The Trust Agreement also provides the Trustees with the power
[t]o do all other acts and to take any and all other action, whether or not expressly authorized herein, which the Trustees may deem necessary or proper to protect the property in the Trust Fund, to collect Contributions and other amounts payable to the Trustees and to carry out the objectives and terms of the Plan.
The Trust Agreement provides that its provisions "may be amended at any time by a written instrument executed by all Trustees, except that no amendment shall alter the general purpose of this Trust and Plan to provide for the payment of pension benefits." (Emphasis supplied.) "[D]ecisions made at meetings of the Trustees," however, "shall require the concurring vote of at least five (5) of the Trustees present in person or represented at the meeting." As a consequence of the rule that five of the six Trustees agree on any decision, at least one of the two Union-appointed Trustees must concur in any decision.
The GHI Pension Plan, as well, provides that it may be amended by the Trustees, although "no such action shall . . . cause any part of the corpus or income of the plan to be used for, or diverted to, purposes other than the exclusive benefit of the Participants and Beneficiaries."
The Trust Agreement contains a procedure for resolution of disputes between the Trustees through arbitration:
Whenever the Trustees are unable to reach a decision as to a proposed course of action hereunder at a meeting at which a quorum is present, any Trustee may submit the proposed course of action for arbitration to an arbitrator agreeable to all of the Trustees then in office or, if all of the Trustees cannot agree on an arbitrator, to the American Arbitration Association for arbitration under its rules then obtaining.
(Emphasis supplied.) The Trust Agreement also notes that the "arbitrator shall not have the power or authority to change or modify the basic provisions of this Trust Agreement or any applicable collective bargaining agreement." (Emphasis supplied.)
2. The Spin-Off Proposal
On December 19, 2001, Employer-appointed Trustee Thomas Nemeth ("Nemeth") proposed that the Fund spin off into a separate cash balance plan that portion of the GHI Pension Plan that benefits GHI's non-collectively bargained employees. The two Union-appointed Trustees voted against the proposal, while the Employer-appointed Trustees voted in favor. By letter dated January 24, 2002, Nemeth notified the Union-appointed Trustees of the Employer-appointed Trustees' intention to submit the dispute to arbitration.
On February 7, 2002, the Union-appointed Trustees filed the instant action pursuant to Section 404 of ERISA, which requires an ERISA fiduciary to discharge his duties "in accordance with the documents and instruments governing the plan." 29 U.S.C. § 1104(a)(1)(D) (2002). The plaintiffs seek a declaratory judgment that the dispute in question is not within the powers of the Trustees to implement and a permanent injunction against arbitration. Plaintiffs and defendants have cross-moved for summary judgment.
DISCUSSION 1. The Legal Standard
It is well established that "arbitration is a matter of contract and a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." ATT Tech., Inc. v. Comm. Workers of Am., 475 U.S. 643, 648 (1986) (citation omitted). "When deciding whether the parties agreed to arbitrate a certain matter (including arbitrability), courts generally . . . should apply ordinary state-law principles that govern the formation of contracts." First Options, Inc. v. Kaplan, 514 U.S. 938, 944 (1995). Nonetheless, "[u]nless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator." ATT, 475 U.S. at 649.
Under New York law, which governs the Trust Agreement, contractual terms are ambiguous when they "suggest more than one meaning when viewed objectively by a reasonably knowledgeable person who has examined the context of the entire integrated agreement." Scholastic, Inc. v. Harris, 259 F.3d 73, 82 (2d Cir. 2001) (citation omitted) (applying New York law). Thus, when the contract's "terms have a definite and precise meaning and are not reasonably susceptible to differing interpretations, they are not ambiguous." Id. "Where the contract is unambiguous, courts must effectuate its plain language." Seabury Const. Corp. v. Jeffrey Chain Corp., 289 F.3d 63, 68 (2d Cir. 2002) (applying New York law).
The plain language of the arbitration clause at issue here does not evidence a clear and unmistakable intent to refer the issue of arbitrability to arbitration. Unlike broadly worded arbitration clauses, which can provide for arbitration of any disputes related to a contract, see, e.g., Bell v. Cendant Corp., 293 F.3d 563, 565 (2d Cir. 2002), the arbitration clause in this case allows for arbitration in one narrow situation — namely, when "the Trustees are unable to reach a decision as to a proposed course of action." Therefore, the issue of arbitrability is for the Court to decide.
The parties agree that interpretation of arbitration clauses that occur in trust agreements is governed by Barrett v. Miller, 276 F.2d 429 (2d Cir. 1960), and Mahoney v. Fisher, 277 F.2d 5 (2d Cir. 1960). Interpreting a clause that referred to arbitration "a deadlock upon any question coming before the Trustees for decision," the Barrett court held that "in no real sense does a question come before the trustees for decision if the answer sought by the proponent would require action plainly beyond the powers conferred upon the trustees." Barrett, 276 F.2d at 431. Consequently, "while a trustee petitioning for the appointment of an umpire need not demonstrate that his interpretation that the issue was one the trustees could decide is the correct one, he must at least establish that it is a possible one." Id. (citation omitted).
Interpretation of the clause is also governed by Section 302(c)(5)(B) of the Labor Management Relations Act, which requires arbitration "in the event the employer and employee groups deadlock on the administration" of pension trust funds. 29 U.S.C. § 186(c)(5)(B). See generally Citrin v. Erikson, 911 F. Supp. 673, 680 (S.D.N.Y. 1996). The Second Circuit has interpreted the term "administration" in Section 302 and the term "decision" in a trust fund arbitration clause as having "identical import." Barrett, 276 F.2d at 430 n. 1.
In Mahoney, as well, the court held that the question of arbitrability depended on the scope of the Trustees' power to implement the proposed act. "Where a decision by an umpire in favor of the action requested would have permitted the trustees to exceed their powers under the trust, the arbitration sought was not to resolve a dispute within the jurisdiction of the trustees." Mahoney, 277 F.2d at 5; see also, e.g., Hauskins v. Stratton, 721 F.2d 535, 537 (5th Cir. 1983); Citrin, 911 F. Supp. at 684 (S.D.N. Y. 1996).
Other courts have reached similar results by distinguishing between "ordinary" and "extraordinary" acts. Extraordinary acts, such as those that would require amending the trust agreement or CBA, are not "subject to resolution by an arbitrator on deadlock." Employee Trustees of the Eighth Dist. Elec. Pension Fund v. Employer Trustees of the Eighth Dist. Elec. Pension Fund, 959 F.2d 176, 180 (10th Cir. 1992); see also Jackson v. Smith, 927 F.2d 544, 550 (11th Cir. 1991). See generally McMahan v. Cornelius, 756 F. Supp. 1156, 1160-61 (S.D.Ind. 1991).
In addition to the strictures set by Barrett/Mahoney, the Trust Agreement itself explicitly provides that the "arbitrator shall not have the power or authority to change or modify the basic provisions of this Trust Agreement or any applicable collective bargaining agreement." While the Barrett/Mahoney framework prevents the Trustees from referring to arbitration a decision that, if implemented, would constitute an ultra vires act, it would not necessarily forbid arbitration of a proposal to amend or modify the Trust Agreement. Because the Trustees have the power to amend the Trust Agreement at issue here by unanimous vote, an amendment of the terms of the Trust Agreement to allow the spin-off proposal could arguably be within their powers. The Trust Agreement, however, explicitly provides that the basic provisions of the Trust Agreement may not be altered through arbitration. But see Singleton v. Abramson, 336 F. Supp. 754, 758 (S.D.N.Y. 1971), amended by No. 70 Civ. 2995 (MEL), 1971 WL 883 (S.D.N.Y. Nov. 11, 1971).
In sum, given the presumption in favor of arbitration, the instant dispute must be referred to arbitration unless it can be said "with positive assurance" that the dispute does not fall within the scope of the arbitration clause. ATT, 475 U.S. at 650. In other words, the dispute is arbitrable unless the Trustees do not even "arguabl[y]" have the power to implement the spin-off proposal. Barrett, 276 F.2d at 433; see also Day v. Graphic Arts Assoc., No. 91 Civ. 2528, 1992 WL 6470, at *8 (E.D. Pa. Jan. 13, 1992). It is clear, however, that any proposal that requires a change or modification of the basic provisions of the Trust Agreement may not be submitted to arbitration.
2. Application to Trust Fund Arbitration Clause
The arbitration clause in the Trust Agreement provides for arbitration "[w]henever the Trustees are unable to reach a decision as to a proposed course of action," but forbids the use of arbitration "to change or modify the basic provisions" of the Trust Agreement. The proposal to spin off assets from the Fund so that they can be devoted to the exclusive benefit of non-union employees is so substantial a change to the Trust Agreement that it is unarguably beyond the powers of the Trustees to effect, and necessarily therefore, beyond the power of an arbitrator. In any event, the proposal cannot be submitted to arbitration since it would require a change and modification of basic provisions of the Trust Agreement, and thus is unquestionably beyond the scope of issues that the Trust Agreement permits to be resolved by arbitration.
To justify this demand for arbitration the defendants rely exclusively on their contention that the spin-off proposal is "consistent" with the fundamental purpose of the Trust Agreement, to wit, that every GHI employee be able to participate in an ERISA plan. The plaintiffs, in contrast and with greater effect, refer to actual provisions of the Trust Agreement to demonstrate that the spin-off of assets is beyond the authority conferred by the Trust Agreement on the Trustees and would require amendment of central provisions of the Trust Agreement.
The description of the Trust Fund in the preliminary "Whereas" clauses of the Trust Agreement provides that "GHI should make contributions to said Trust Fund sufficient to ensure . . . that each employee of GHI" receives the pension benefits described in either Group A or Group B. (Emphasis supplied.)
The Trustees, in turn, are to "receive and hold in trust such contributions and other money or property which may come into the Trust Fund." Divesting assets of the Trust Fund and placing the divested assets in another trust would violate GHI's obligation to make contributions for "each employee" through the Trust Fund and the Trustees' obligation to "receive and hold" such contributions in trust for these employees.
Article II(1)(a) of the Trust Agreement also requires that the Fund's assets be kept within the Fund and paid solely to the Fund's beneficiaries. In describing the purposes of the Trust Fund, it provides that the "Trustees shall use and apply the Trust Fund . . . [t]o provide for retirement and related benefits for Participants and Beneficiaries in Group A or Group B as the Plan governing the respective Groups may be modified from time to time." "Participants" and "Beneficiaries" are, in turn, defined as persons receiving benefits from the Trust Fund. If the Trust Fund is divested of a portion of its assets in order to allow those assets to benefit solely the non-union GHI employees, the Trustees would no longer be using and applying the diverted assets to provide benefits within the Fund, to pay the GHI beneficiaries in Group A and Group B, or to provide benefits under the Plan.
The defendants admit that the diverted assets would "no longer" be used to benefit employees "within Group A or Group B" or to make payments pursuant to the Plan, but contend that this is permissible since those assets will still be used to benefit GHI employees and that all of those employees now within Group A or B would receive benefits either under the Plan or under the proposed cash balance plan. This argument, however, is not constructed from the language of the Trust Agreement or any "possible" or "fairly arguable" interpretation of that language.
In addition, the spin-off proposal would require exercise of Trustee power beyond that for which the Trust Agreement provides. Article III(1)(a) of the Trust Agreement confers on the Trustees the power to "demand, accept and receive all [c]ontributions, hold or invest the same and the income, increment and proceeds of the sale of any investments or reinvestments, and manage and administer the assets of the Trust Fund." The power to accept, receive, hold, invest, manage and administer Trust Fund assets cannot be interpreted, even "arguably," to include the power to divest the Fund of a portion of its assets. Further, even if the Trustees had such a power, this power must be exercised "for the uses, purposes and trust herein provided" — namely, to use and apply Trust assets to provide benefits to all of GHI's qualified employees pursuant to the Plan and within the Fund. Nor can this authority be found in the residual powers clause in Article III(1)(q), which provides the Trustees with the authority to "do all other acts and to take any and all other action, whether or not expressly authorized herein," because such acts must be "necessary or proper to protect the property in the Trust Fund, to collect Contributions and other amounts payable to the Trustees and to carry out the objectives and terms of the Plan." (Emphasis supplied.)
The defendants also maintain that the Trustees have inherent powers to implement the proposal. Whatever inherent powers the Trustees may have, they do not have the power to violate the purposes of the Trust Fund.
Finally, the proposal, if implemented, would require both the Trustees and GHI to violate their obligations under the Trust Agreement. Article III(4) of the Trust Agreement provides that the "Trustees shall promulgate a Plan of Benefits and such rules and regulations as are necessary for the sound and efficient administration of the Trust." Were the proposal implemented and Trust Fund assets spun off into a separate fund, the Trust Fund's benefit schedule and corresponding rules and regulations would no longer apply to those non-union employees who participate in the separate fund. Similarly, Article IV(1)(b) requires GHI to make contributions to the Trust Fund "as required to fund and pay the pension and other benefits to which Employees may become entitled under the Pension Plan," and that contributions will be payable to the GHI Pension Plan "in the manner and form specified." If the assets of the Trust Fund that provide benefits to non-collectively bargained employees are spun off into another trust fund, contributions for these employees are no longer being paid by GHI into the Trust Fund and governed by provisions of the Plan.
While defendants characterized the proposal, at least in their initial brief on this motion, as requiring only an amendment of the Plan, as the preceding discussion makes plain, the proposal, which requires divesture of Trust Fund assets, is in fundamental conflict with several provisions of the Trust Agreement. Divesting the Trust Fund of a portion of its assets is not an ordinary act of trust administration but rather an extraordinary act that requires amendment of the Trust Agreement. Cf. Sengpiel v. B.F. Goodrich Co., 156 F.3d 660, 665 (6th Cir. 1998) (a transfer of benefits is more analogous to amending a welfare plan than administering it). The defendants have not identified any provision in the Trust Agreement that would allow the Trustees to divest the trust corpus of a portion of its assets consistent with the purposes of the Trust Fund. Because such an outcome would violate the Trust Agreement absent amendment, the proposal is not even arguably within the Trustees' power and the case may not be referred to arbitration. Moreover, the Trust Agreement could not be amended through arbitration to allow implementation of the proposal because the Trust Agreement itself forbids arbitration of any change or modification of a basic provision of the Trust Agreement.
It is unnecessary to decide whether a more limited proposal to revise the Plan (the Trust Fund's schedule of benefits) could arguably be within the Trustees' authority to implement. Unlinking benefit levels received by union and non-union employees could, however, sufficiently alter the employer-employee relationship to require an amendment of the CBA. See, e.g., Employee Trustees, 959 F.2d at 181; Gold v. Pennachio, 757 F. Supp. 13, 15 (S.D.N.Y. 1991); Botto v. Friedberg, 568 F. Supp. 1253, 1256 (E.D.N.Y. 1982).
3. Relief
Because "there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality," Dicola v. Am. Steamship Owners Mut. Protection Indemnity Assoc., Inc. (In re Prudential Lines, Inc.), 158 F.3d 65, 70 (2d Cir. 1998) (citation omitted), the plaintiffs are entitled to judgment on their first cause of action pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201(a), for a declaration that the proposal is beyond the authority of the Trustees under the Trust Agreement. The plaintiffs are also entitled to a permanent injunction prohibiting the defendants from proceeding with arbitration of Trustee Nemeth's December 19, 2001 proposal. The Union-appointed Trustees "would be irreparably harmed by being forced to expend time and resources arbitrating an issue that is not arbitrable, and for which any award would not be enforceable." Md. Cas. Co. v. Realty Advisory Bd. on Labor Relations, 107 F.3d 979, 985 (2d Cir. 1997).
CONCLUSION
For the reasons stated above, the defendants' motion for summary judgment is denied. Plaintiffs' motion for summary judgment and requests for a declaratory judgment and a permanent injunction are granted. The Clerk of Court shall enter judgment for the plaintiffs and close the case.
SO ORDERED: